Confidence has returned to India's share market after it plunged to a 14-month low on the back of the latest global financial turmoil, the country's finance minister said Wednesday.
India's benchmark Sensex index of 30 leading shares soared nearly 400 points in early trade as part of a global upturn after the US Federal Reserve pledged to hold interest rates near zero for at least two years.
"One thing is certain -- confidence has come back in respect of Indian markets," Finance Minister Pranab Mukherjee said, a day after Indian shares hit their lowest level since June 2010 on worries about international debt.
"In a couple of days it (the market) will be stable," Mukherjee said as the Bombay Stock Exchange's Sensex ended the day up 272.60 points or 1.62 percent at 17,130.51 points.
He said the downgrade by Standard & Poor's of the US credit rating and heightened concern about the debt crisis in Europe could have some impact on India's capital and trade flows.
But "the (central) Reserve Bank of India and the Ministry of Finance are working together in close cooperation to ensure that whatever steps are needed are taken" to offset the effect on India, he told reporters in New Delhi.
The latest financial upheaval has come as India is battling nearly double-digit inflation. Recent economic data has shown the economy slowing under the brunt of the longest stretch of monetary tightening in a decade.
In a fresh sign of weakness, an industry body reported on Wednesday that car sales for July -- seen as a growth bellwether -- slumped nearly 16 percent, the steepest decline in close to three years.
India's hawkish central bank has raised interest rates 11 times since March 2010, making loans for everything from cars to new factories more expensive.
To bolster the economy, India will focus on spurring greater domestic consumption, Mukherjee said in a statement Tuesday in which he also promised to "fast-track" long-awaited market-opening reforms.
Foreign investors have been pushing New Delhi to loosen tightly regulated sectors in Asia's third-largest economy such as retail and insurance to outside investment.
Despite the latest international troubles, Mukherjee has insisted India will be able to match this year the 8.5 percent growth it posted in the previous 12 months to March 2011, even though economists are more bearish.
In the last global financial crisis in 2008-09, India came through relatively unscathed, posting nearly seven percent growth, helped by its still inward-looking economy.
While the country of 1.2 billion people has liberalised its economy in the last two decades and dismantled a number of foreign investment barriers, it remains largely domestically driven.
"A lot of global growth fears gripping the market should be less of a concern for a relatively closed economy such as India with its big domestic market," London-based Capital Economics Asia economist Sukhy Ubhi told AFP.
Finance ministry officials hope a silver lining for India from the global woes is a softening of international commodity prices that could help ease inflation and possibly allow the central bank to halt its monetary tightening.